Debt Collection in South Korea

The debt collection process in South Korea begins with an assessment of the debtor’s solvency, their business sector, business history, availability of documentary evidence of the debt, ongoing court cases and enforcement proceedings, and the possibility of disputing the debt. This assessment determines the strategy that will be used on behalf of the client in the collection process.

If the debtor has no ongoing court cases or outstanding judgments for debt collection and is actively engaged in commercial activities, then it is advisable to use the out-of-court debt collection stage.

This stage involves active negotiations with the debtor in order to reach an agreement on payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process involves intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve the fastest possible debt collection.

The average time for informal extra-judicial collection is up to 60 days (except in cases where a payment plan is agreed upon). If this stage does not bring the expected results or after an initial analysis it becomes clear that it is not applicable, you should proceed to collection through the courts.

Before initiating judicial collection, it is worth paying attention to the statute of limitations. The statute of limitations for debt collection is 10 years. The statute of limitations is interrupted if the debtor acknowledges the debt obligation. After the interruption, the statute of limitations begins to count anew.

South Korean legislation provides for judicial debt collection in the usual judicial procedure and in the procedure for issuing a payment order.

The usual judicial procedure is carried out by filing a statement of claim with the court, after which the court makes a decision on accepting the claim. If the claim complies with the requirements of the law, the court shall serve a copy of the claim on the defendant. If the defendant disputes the plaintiff’s claim, he must file a written objection within 30 days of receiving a copy of the claim.

If a written objection is not filed within the specified period, the court may render a decision without holding a debate, assuming that the defendant has admitted the facts constituting the grounds for the claim. However, this does not apply if there are issues subject to mandatory investigation. This option for the court is also provided for in the event that the defendant has filed a written objection, admitting all the facts constituting the grounds for the claim, and has not made a separate statement.

If a written objection is filed within the specified period, the court shall immediately set a date for the debate. For the debate, the parties must prepare written statements in which they indicate: the means of prosecution or defense and a list of the attached documents. Written statements must be filed in such a way that the other party has sufficient time to prepare for the issues set out in them.

If the defendant fails to appear on the date of the argument, the matters set forth in the written objection and other papers filed shall be deemed to have been asserted, in which case the argument will be held. If a party has not expressly disputed the facts set out by the other party during the pleadings, it is deemed to have admitted such facts, but this does not apply if the facts can be considered to have been disputed on the basis of all the pleadings.

The period for considering a case is 5 months from the date of filing the claim with the court. After the court has established the material facts of the case, examined the evidence and heard the positions of the parties, the court must complete the pleadings and make a decision within two weeks after the end of the pleadings. In complex cases, a decision may be made within four weeks.

The procedure for issuing a payment order is applicable to the collection of a certain amount of money or other fungible things or securities. To implement this procedure, the creditor must file an application with the court, after which the court, if the application meets the procedural requirements, issues a payment order in which it orders the debtor to pay the amount demanded by the creditor within two weeks or to file objections within the same period. If the debtor objects to the payment order, and the court considers that the debtor’s objections are justified, the payment order loses its force. In such a case, the creditor’s claims are subject to consideration in the general order. If the debtor objects to the payment order, but the court rejects his objection by its ruling, then the payment order acquires the force of a final court decision. The payment order also acquires the force of a final decision in the absence of objections from the debtor.

The decision of the court of first instance may be appealed to the court of second instance within two weeks from the date of service of the written decision. The decision of the court of second instance may be appealed to the Supreme Court of the Republic of Korea within two weeks from the date of service of the written decision, only if there was a violation of the Constitution, laws, administrative regulations that affected the contested decision. The decision of the Supreme Court is final and cannot be appealed further. The period for consideration of an appeal in the court of second instance and in the Supreme Court shall not exceed five months from the date of transfer of the case materials to the court that heard the appeal.

After the court decision comes into legal force, the creditor should initiate the procedure for enforcement. The court decision may be presented for enforcement within 10 years from the date of entry into legal force of the decision. As part of the enforcement of the court decision, the creditor’s claims may be satisfied by seizing and writing off funds from the debtor’s accounts; seizure of the debtor’s movable and immovable property with their subsequent sale; seizure and confiscation of securities; seizure and confiscation of sea vessels.

An alternative option for debt collection is to use the bankruptcy procedure of the debtor. The creditor has the right to initiate this procedure, provided that the debtor is insolvent. The Debtor Rehabilitation and Bankruptcy Act establishes that the debtor is insolvent when he suspends payments. If the debtor is a corporation, it can be declared bankrupt if the amount of the corporation’s liabilities exceeds the amount of its assets. At this stage, if the debtor’s assets are insufficient to fully satisfy the claims of creditors, it is possible to cancel the debtor’s actions committed with the intent to cause damage to creditors. Among such actions, the following should be highlighted in particular: a gratuitous action or a compensated action equivalent to a gratuitous one, committed by the debtor before or after six months from the date of suspension of payments; provision of security or repayment of a debt by the debtor that is not related to its obligations; any action taken by the debtor with the knowledge that it causes damage to creditors in the bankruptcy case, provided that the beneficiary of such action knew that the debtor’s action caused damage to creditors at the time it was committed. In addition, if it is established that directors or other officers of the corporation committed fraudulent actions in relation to creditors, they can be held liable for the company’s debts. As a result of the cancellation of the above actions, it is possible to return back to the debtor what he lost from such transactions and thereby increase the liquidation estate to satisfy the claims of creditors and cover the costs of implementing the bankruptcy procedure.

If you have any questions or you need support on international debt collection in South Korea, our company is ready to provide its expert assistance to effectively resolve your financial issue. Contact us for additional information and professional support from specialists of the leading debt collection agency.

# DEBT COLLECTION AGENCY SOUTH KOREA

04.10.2024

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